Sibanye safety mess leads to US securities class suit

● Risk factors for Sibanye-Stillwater are on the rise as hefty debt and the troubles it faces when it takes over Lonmin at the end of the year have been compounded by legal action in the US over safety issues at its gold mines in South Africa.

US-based law firm Bernstein Liebhard said on Thursday it had filed a securities class action lawsuit on behalf of those who had acquired the securities of the company between April 7 last year and last Tuesday, a period in which the share price plummeted 61%. The law firm is accusing the company of misleading shareholders and failing to disclose information regarding mine safety.

Sibanye acquired US-based palladium mine Stillwater last year, reducing its exposure to South Africa. But the deal left it with net debt of R23-billion, equivalent to the company’s market capitalisation at the time.

This year a high number of fatalities at the company’s gold operations, resulting in 21 out of the 47 deaths in the industry this year, alarmed shareholders.

Legal action could depress the share price further if more shareholders decide to join the case.

Richard Spoor, lawyer at Richard Spoor Inc Attorneys, said the class action could cause problems for Sibanye because the company is already under pressure.

“South African shareholders could participate [in the class action], but it’s a Catch-22. This kind of litigation doesn’t do the company much good either, so shareholders are not enhancing the company’s prospects by doing this action.

“But maybe they have taken a really grim view and they feel that things have gone too far,” Spoor said.

It was one thing to have bad luck, he added, because not every accident points to a trend. But the number of fatalities at Sibanye was “beyond bad luck and suggestive of systemic failure”.

“Sibanye needs to show that it is serious about turning this around. It’s not a nice situation for the company but it’s worse for the workers who are dying,” Spoor said.

However, Rene Carlo Hochreiter, an analyst at Noah Capital Markets, said it would be difficult for the US lawyers to prove that management was at fault over safety issues because each incident that had led to mineworkers’ deaths would need to be weighed on its own merits.

Investigations into the incidents were still being carried out and in order for the class action to succeed they would need to show that Sibanye’s management was in contravention of mine laws and regulations or was directly responsible for the deaths.

Class actions in South Africa are rare but common in the US, and are often successful.

“If I was a shareholder of Sibanye I would say: ‘Now you are wasting more of my money defending this action, what are you trying to prove? You’re even making it worse’,” Hochreiter said.

Sibanye said it would fight the class action. On Friday it said at its second safety summit that a plan of action had been agreed with the Department of Mineral Resources and unions.

Sibanye must show it is serious about turning this around. It’s not nice for the company but it’s worse for workers who are dying

Richard Spoor

Laywer at Richard Spoor Inc Attorneys